The inflation expectations are important because it is one of the surveys the MPC uses to determine the repo rate.
Inflation expectations for the third quarter of 2025 are the lowest ever, but the expectations for GDP are also low.
The Bureau for Economic Research (BER) inflation expectations survey indicated that the three social groups on average lowered their longer-term inflation expectations and now expect headline inflation in the next five years to average 4.2%, which is 0.2% lower than during the second quarter and the lowest rate on record (2011).
The inflation expectations of four social groups are measured in a quarterly survey that the BER conducts. The South African Reserve Bank (Sarb) commissioned the BER to conduct a quarterly survey to measure inflation expectations and other macro-economic variables related to inflation in 2001.
The four social groups are analysts, business people, senior representatives of trade unions and households. Four social groups are used because each group has a different perspective and effect on inflation.
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Why are all four groups surveyed for inflation expectations?
Business people, for example, affect prices in the real economy, while analysts affect financial markets and trade union representatives and households, in their role as employees, affect wage increases, which in turn have a big impact on inflation.
The Monetary Policy Committee (MPC) of the Sarb considers the results of the inflation expectations survey with other sources of information when it decides on the repo rate.
The MPC becomes concerned if inflation expectations are significantly above the lower of the inflation target range of 3% to 6% and/or the other inflation indicators deteriorate.
According to the BER, increasing inflation expectations may, for example, lead to higher wage demands as workers feel they must be compensated for the higher expected inflation in future. Businesses may also adjust their price increases upwards if demand is robust enough.
The Sarb prevents higher expectations from becoming a reality by increasing the repo rate. The BER points out that the opposite happens if inflation expectations and other indicators decrease.
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All four groups lowered inflation expectations by 0.3% for 2027
The 2025 third quarter survey of financial analysts, business executives and representatives of the trade union movement was conducted between 18 August and 4 September and the results were computed on 5 September 2025.
Similarly, the four groups lowered their expectations for headline inflation in 2027 by 0.3% to 4.2%, the lowest in 20 years. Among the three social groups, analysts and trade union officials both made similar downward revisions, although analysts expect five-year inflation to average at 3.6%, while trade unionists expect 4.3%.
The BER says business people are the exception. They made no changes to their previous forecast for 2027 or the five-year average and still expect an average of 4.5% for the five-year average.
According to the BER, these downward revisions were made against the backdrop of Sarb’s announcement of a change to the preferred inflation target at the end of July, just before the survey period.
From now on, Sarb governor Lesetja Kganyago said the central bank will target inflation at 3% rather than the 4.5% midpoint, although long-term inflation expectations have already been on a declining trend since the beginning of 2024.
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Near-term inflation expectations down 0.1% for 2025
In the case of the near-term expectations the three social groups on average lowered their forecast of headline inflation by 0.1% for 2025 to 3.8% and for 2026 to 4.2%. All three social groups did some slight downward revisions, with analysts now expecting 3.9% next year, while business people expect 4.5% and trade unions 4.3%.
The one-year inflation expectations of households were virtually unchanged from the second to the third quarter at 5.5%. In this case the expectations for the various income groups were very similar, the BER says.
Similar to their view on lower consumer inflation the survey respondents also revised down their forecast of wage increases for the third quarter. They now expect salaries to increase by 4.7% this year and 4.8% next year, compared to 4.9% and 5.1% previously.
The BER notes that economic growth expectations continued to be eroded among all social groups, although by a smaller margin than previously. On average, they expect GDP growth of 0.8% this year, accelerating to 1.2% next year after settling on 0.9% for 2025 and 1.2% for 2026 previously.
